14th North American Waste to Energy Conference
May 1-3, 2006, Tampa, Florida USA
NAWTEC14-3184
Maximizing Energy Revenues - Providing the Best Incentive
to the Contract Operator
Anthony LoRe, P.E., DEE, Principal
Camp Dresser & McKee Inc.
50 Hampshire Street
Cambridge, Massachusetts 02139
Paul Stoller, Vice President
Camp Dresser & McKee Inc.
50 Hampshire Street
Cambridge, Massachusetts 02139
Robert Hauser, P.E., Operations Manager
Pinellas County Utilities Department of Solid Waste Operations
b
3095 - 114t Avenue North
St. Petersburg, Florida 33716
retained by the community. This paper analyzes
ABSTRACT
several different approaches to sharing energy
Communities that own waste-to-energy (WTE)
by their facility to help pay for the costs to
revenues in light of the operational experience
gained over the past 20 plus years and concludes
that, while energy revenue sharing is still in the
facilities rely heavily on the revenues generated
finance, operate and maintain these facilities.
best interest of the community, the widely
The two primary revenue streams are tipping
employed strategy of a 9011 0 split may not offer
fees and energy sales, generally in the form of
the best incentive, and therefore may not lead to
electricity. While communities often retain all of
the maximization of energy revenues to the
the tipping fee revenue, revenue from the sale of
community.
energy is nearly always shared with the contract
operator. In some cases the shared energy
INTRODUCTION
revenues include both capacity and electricity
payments. The basis of this strategy is to offer
As of 2004, there were 89 WTE facilities
the contract operator an added incentive to
operating in the United States [1]. Most of these
maximize this revenue stream through more
projects were developed in the 1980s and early
efficient operation and, in the case of capacity
payments, to meet certain capacity commitment
1990s and are approaching 20 years of operation.
More than one-third of the WTE facilities are
criteria required by the energy purchaser. This
publicly owned, with the vast majority of these
strategy recognizes that the contract operator has
plants being operated and maintained by private
some degree of control over the factors that
affect energy production.
firms under 20 or 25 five year service
agreements. The contract operator's
Under most existing service agreements, which
annual service fee or a processing fee for each
compensation typically consists of either an
date back to the 1980s, energy revenues are
ton of waste processed and, in many cases, a
shared on a 90110 basis, with 90 percent going to
share of revenues from the sale of energy and
the community. Now that many of these service
metals recovered from the waste and/or ash
agreements are coming up for renewal or are
streams.
expiring, communities will need to revisit how
best to share energy revenues with the contract
Most of the original service agreements for
operator in order to maximize the total revenues
publicly owned facilities will be coming up for
47
Copyright © 2006 by ASME
renewal or will be expiring within the next 5
years, which will require these communities to
municipality receives 100 percent of the net
electricity revenues up to an armual guarantee
with the contract operator receiving significantly
negotiate new service agreements either with the
current operator on a sole-source basis or as part
more than 10 percent of the revenues from
of a request for proposal process. This presents
an opportunity for the community to review the
electricity generated in excess of an annual
guarantee.
terms and conditions of the original service
agreement in light of the operational experience
OPERATING EXPERIENCE WITH 10
PERCENT ENERGY REVENUE SHARE
gained over the first term including the merits of
sharing a portion of the energy revenues with the
contract operator. Energy revenues have
A 10 percent energy revenue share has, for the
historically been a significant source of
most part, been adopted as the generally
additional revenue to the contract operator,
representing as much as 10-15 percent of their
total revenues.
accepted industry standard over the years.
However, actual experience over the past 20
years suggests that this approach does not offer
enough incentive for the contract operator to
optimize energy production. For example, the
PAST ENERGY REVENUE SHARING
PRACTICES
contract operator is less likely to undertake
maintenance and repairs to increase or maintain
Energy sales are also a significant source of
performance if his share of the incremental
revenue is not significantly higher than his cost
revenue to the community and are critical to
achieving a competitive tipping fee. Total
energy revenues can be equivalent to $20-$40
to undertake the work. Consequently, the
community often realizes little return for sharing
per ton of waste depending on the energy
this portion of the revenue stream. The contract
contract price. Therefore, maximizing energy
operator, meanwhile, often has to expend little or
production should be one of the community's
no effort to realize this revenue and may, in fact,
primary operational goals. There are a number
reduce expenses by calculating the economic
tradeoffs of the potential savings on maintenance
of ways to maximize energy revenues including:
expenses versus the potential loss of incremental
(i)
generating more electricity by
increasing facility throughput
energy revenues.
through higher steam capacity
Typical maintenance and repair work that can be
susceptible to such economic trade-off analyses
as a result of this revenue sharing approach
utilization and/or higher boiler
availability;
include, for example, the cleaning frequency of
(ii)
(iii)
generating more electricity by
optimizing the efficiency of the
steam condensing systems (e.g., surface
power cycle; and/or
condensers) and the replacement of failed
condenser tubes, which are generally capped
selling a higher percentage of the
gross electricity produced by
instead. Deferring this work can end up reducing
the efficiency of the power cycle and result in
reducing in-plant power
consumption.
lower energy production. However, if the
reduction in the contract operator's share of the
condensers, cooling towers, air cooled
electric revenues is less than the savings that the
Since the contract operator has a large degree of
contract operator realizes by deferring
control over all of the above factors,
consideration is often given to sharing a portion
maintenance, then the contract operator is
economically incentivized to defer the work and
of the net energy revenues with the contract
operator as a fmancial incentive to maximize
of the deferred maintenance is born by the
reap the economic benefit. Most of the downside
contract community under a 90/10 energy
revenue sharing approach.
these revenues. In fact, most of the original
WTE service agreements provided for sharing a
portion of the net electricity revenues with the
contract operator. In the vast majority of these
To illustrate this point, consider the cleaning
deals, the municipality receives 90 percent of the
frequency for an air cooled condenser. Cleaning
total net electricity revenues and the contract
an air cooled condenser every other month
operator 10 percent. In a few cases, the
during the summer months has been observed to
Copyright © 2006 by ASME
48
3
result in a one-half inch mercury absolute (0.50
Option
in HgA) increase in the condenser pressure
during the months between cleanings, which
Energy Revenues
-
Percentage Share ofExcess Net
lowers the steam turbine-generator output by
Under this option, the community would share a
approximately 1.5 percent. For a30 MW
turbine-generator, this results in a decreased
output of324 MWH per month or $16,200 in
fixed percentage (e.g., 50 percent) of the net
energy revenues from electricity generated in
excess of an annual amount stated in the service
lost energy revenues based on an energy rate of
agreement.
$0.05/kwh. The community's share of the lost
energy revenues would be $14,580 during each
Option 4
of these months while the contract operator's lost
Factor
-
Energy Credit Based on an Efficiency
revenues would only be $1,620. In this case, the
contract operator would be unlikely to clean the
air cooled condenser monthly since his cleaning
Under this option, the community would pay an
energy credit to the contract operator for
costs would most likely exceed his potential
operating in excess of a base efficiency factor
additional revenues. However, if the revenue
(e.g., KWH/ton waste processed, KWHIKlbs
share for excess energy was 50/50, for example,
steam).
the contract operator's return would likely justifY
the additional expense for monthly cleaning and
CONCLUSION
the community's total energy revenues would
also increase.
In order to maximize energy revenues, it would
Additionally, the traditional 90/10 energy
be in a community's best interest to share energy
revenues with the contract operator. However,
revenues split also does not generally provide
based on operating experience over the past 20
sufficient incentive for the contract operator to
reduce in-plant power consumption through
years, the widely employed strategy of a 90/10
split may not offer the best incentive.
operational and/or process changes such as
increasing the efficiency of in-plant electrical
While payment of an energy credit based on an
efficiency factor would tie energy revenue
loads. In-plant power consumption represents a
significant portion of the gross power generated,
sharing directly to the efficiency of the power
typically 12-15 percent on large WTE facilities
cycle, efficiency factors can be affected by
and up to 20 percent on smaller facilities.
conditions outside the control of the contract
operator and therefore would not be as fair
an
ENERGY REVENUE SHARING OPTIONS
approach.
There are several potential energy revenue
sharing options that are available to a community
Sharing energy revenues based on excess net
revenues (Option3) would appear to be the best
that will need to enter into a new service
agreement in the future including the traditional
approach because it offers the greatest incentive
to the contract operator to maximize energy
90/10 split. The following four options represent
revenues, particularly if the contract operator's
revenue share of the excess net revenues is 50
a range of different approaches, each with its
own merits. A summary of the advantages and
disadvantages of each option is provided in
percent or higher. Under this option, the contract
operator would only share in energy revenues
Table 1.
that were realized by exceeding a predetermined
annual electricity generation guarantee. This
Option 1
-
No Energy Revenue Sharing
approach ensures that the community receives a
minimum amount of energy revenues before the
Under this option, 100 percent of the energy
contract operator is eligible for compensation
revenues would be retained by the community.
and rewards the contract operator solely for
exceeding a minimum threshold. The contract
Option 2
-
Percentage Share of Total Net
operator would be more likely to undertake
Energy Revenues
additional maintenance and repairs to maximize
Under this option, the community would share a
investment would be much greater. We have
fixed percentage (e.g., 10 percent) of the total net
proposed this approach in the draft service
energy revenues with the contract operator.
agreement that was sent to the three prequalified
performance because the potential return on his
49
Copyright © 2006 by ASME
contract operators in February 2006 for the
Reprocurement of a contract operator for the
Pinellas County 3,000 tpd WTE facility. We
may have some additional information to report
at the conference regarding the wisdom and
viability of this approach from the contract
operator's perspective.
REFERENCES
[1] Kiser, J.V. and Zannes, M., "The 2004 IWSA
Directory of Waste-To-Energy Plants",
Published by the Integrated Waste Services
Association, Washington, D.C.
Copyright © 2006 by ASME
50
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Option
directly to the efficiency of the
Efficiency Factor
May result in a higher service fee since this lower revenue stream would offset less of
the contract operator's costs and expected profit
Community would likely retain
operator (e.g., refuse heating value, ambient air temperature, etc.)
more of the total energy revenues
processing fee
service fee was based on a per ton
under agreements where the
twice for increased throughput
reward the contract operator
power cycle and would not
Ties energy revenue sharing
Energy Credit Based on
Efficiency factors can be affected by conditions outside the control of the contract
throughput, the later of which the contract operator would also be rewarded if the
service fee was based on a per ton processing fee
Relatively easy to administer
Rewards contract operator for both higher power cycle efficiency and increased
Community would likely retain
surpass the stated energy
production amount
Excess Net Energy Revenues
May result in a higher service fee since this revenue stream may offset less of the
contract operator's costs and expected profit
service fee was based on a per ton processing fee
throughput, the later of which the contract operator would also be rewarded if the
more of the total energy revenues
Offers greatest incentive to
expected profit
contract operator's costs and
Rewards contract operator for both higher power cycle efficiency and increased
to increase other revenues
revenue stream to help offset the
Community retains less than the total energy revenues, thereby causing the community
by providing an alternative
Minor incentive to maximize electricity generation
May result in lowest service fee
Relatively easy to administer
not be available to help offset the contract operator's costs and expected profit
Would likely result in higher service fee since a portion of this revenue stream would
revenues
No administrative effort
Disadvantage
Lack of incentive could lead to lower energy revenues for the community
Advantage
Community retains 100% of
Percentage Share Based on
Total Net Energy Revenues
Percentage Share Based on
No Energy Revenue Sharing
Table 1
Comparison of Energy Revenue Sharing Options